Bayer's $400M Cipro Payout Strangled Market, Consumers Say

As reported in Law360, a class of consumers argued before California's highest court last week that Bayer AG's $400 million pay-for-delay patent settlement preventing Barr Pharmaceuticals Inc. from selling its generic version of the antibiotic Cipro preserved a monopoly for Bayer that allowed the company to rake in profits. In their opening brief before the California Supreme Court on March 27, indirect Cipro purchasers asked the court to reverse the state Court of Appeal's ruling last year holding that Bayer's pay-for-delay settlements with Barr hadn't broken competition laws, saying the lower court had ignored the settlement's harmful effects on competition for the drug.

"The Cipro agreements violated California law because they constitute a naked payoff of $398.1 million from one horizontal competitor to other horizontal competitors to suppress competition," according to the brief. "The agreements significantly harmed California purchasers by denying them the benefits of a competitive market and requiring them to pay higher prices." The payout stems from Barr's attempt in 1992 to invalidate Bayer's patent for its Cipro drug so that the generics maker could introduce its own version of the antibiotic to market.

That suit, filed in New York federal court, ended in 1997 after the parties came to terms with a deal by which Barr — since acquired by Teva Pharmaceutical Industries Ltd. — would accept the payout in exchange for dropping its invalidity suit and allowing the German company free rein in the market.  California consumers and insurance groups brought their lawsuit against the pharmaceutical companies in San Diego Superior Court in 2002, saying the reverse exclusionary payment deal allowed Bayer to boost Cipro prices to the detriment of purchasers.  The lawsuit alleged violation of California's Cartwright Act, Unfair Competition Law and common law doctrine prohibiting monopolistic acts.

However, the trial court in 2009 granted summary judgment for the respondents, invoking the Second Circuit's 2006 ruling in In re: Tamoxifen Citrate Antitrust Litigation in which the appeals court approved a similar settlement over a breast cancer drug and issued a rule granting the presumptive legality of such settlements should the underlying patents hold up.  Following appeal, California's Court of Appeal upheld the trial court's ruling in October. The state's supreme court agreed to consider a further appeal of the matter in February.

The indirect purchaser plaintiffs said in last week's brief that exclusion agreements such as Bayer's cost consumers $3.5 billion each year in the form of inflated drug costs and that "the pay-for-delay settlement at issue here, ending litigation over Bayer's patent on ciprofloxacin hydrochloride, is the worst of a bad lot."  In order to make up the $400 million payout, Bayer immediately boosted Cipro prices and has continued to exercise total control of the market thanks to a lack of competition, conduct that should be held illegal per se, according to the brief.